Going with LIC will give following benefits
- Readily available funds.
- This is a non market linked scheme ,so fund will be available even if the market is up or down .
- Gratuity fund is treated as Business expense under Sec( 36) of Income Tax Act ,therefore there is an 100% rebate as well as 33% tax saving.
Also interest upto 8-9% is earned by the employee if scheme is installed under LIC,there is no financial implication if diverted towards LIC , only funding has to be done as per acturial valuation done by them.
Even if the fund can be managed by the company itself ,then above benefits would be out of picture ,therefore most of the companies try to invest the idle fund lying with them.
23rd July 2010 From India, Pune
Companies usually pick one of the 2 options after carefully weighing the pros & cons. Just to let you know both options are still eligible for favourable tax treatment & savings
Ravi Shekhar CFA
25th July 2010 From India, Delhi
Absolutely no problem if you pay the gratuity to your retired employees or nominees of the expired employees from your own resources. The LIC or other insurance companies simply take over your responsibility for promotion of their business. If you find the gratuity payment from your own funds more economical than through some insurance company, nothing prevents you from doing so. Only consult your finance people and make sure that your option is in the best interest of your company. Once you pay the gratuity, your are fully complying with the law. The law enforcing machinery will not ask you anything in the matter.
25th July 2010 From India, Pune
ie Last Salary (Basic +DA) /26(No of working days) *15 (Half the month) *no of years of service completed
More then 6 mths is considered as one year
31st July 2010 From India, Bangalore
As Parul rightly elaborated the fact about Gratuity Payment. I just would like to add that, the Payment of Gratuity Act does not talk about any such compulsion. It contains only the directives that, employer shall go for LIC or any other Insurance Provider. Best of Luck to you and Parul.
31st July 2010 From India, Pune